Financing a self build project

If you are planning to build your home on your own there are several ways of financing a project:

  • Use savings (if so, you can probably stay in your existing home until the new one is built). Sometimes people are able to supplement their own savings by arranging an informal loan from family or friends.
  • Sell your current house to raise the finance you need, or use your existing property as surety for a loan to fund the new house. If you have to sell your current home you might then live in a caravan on site, or with relatives, or rent a house while the new home is built.
  • Borrow the money by taking out a mortgage on your proposed self build home.

You need to assess your situation and work out which method or combination of methods will work best for you.

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Typically, self-build mortgages are offered by specialist lenders such as building societies, and also be some banks.

For a self-build mortgage you usually receive funds at different stages of the build, and traditionally this was reliant on a valuer visiting the site to sign off on these stages, and release the next tranche of funds. However, this can run the risk of cashflow problems if the site is “downvalued”, potentially leaving you short of money to pay bills or progress work.

Some specialist providers, such as Mayflower Mortgage and Finance and Buildstore, offer innovative self-build mortgages, specifically designed for the market. Other lenders, such as Ecology Building Society, have a particular ethos to their lending, such as sustainable products. These companies are very well placed to discuss the market, and often have other resources that self builders can make use of.

Many building societies operate in the self build arena, as this kind of lending sits well with their identity as a society. They can also be a good source of information, with many, such as Saffron Building Society and Swansea Building Society, having their own self build guides.

For example some products will release funds during the build that are linked to the cost of each stage of work and aren’t reliant on the site value.

Certain products offer funds “in advance” of each stage of work and reduce your contribution to land and build costs to as little as 5%, compared to traditional self-build mortgages which may require you to contribute as much as 40% of costs.

Traditionally, you could only borrow roughly 75% of the land cost, and 60% of the build cost, so you will still need a sizeable deposit. However, there is a range of mortgages available that offer higher loan values.

Mainstream lenders are increasingly accepting new ways of building a home – known as “Modern Methods of Construction”- including various combinations of structural construction and cladding and including offsite manufactured systems which can significantly speed up the build process. For excample, Ecology Building Society has launched a new product specifically for self builders using MMC and offsite construction.

NaCSBA’s Members Directory lists financial/mortgage providers, and an up-to-date list of self build mortgage providers can be found at Build It’s website.

Community led housing

Community-led housing schemes are eligible for grants towards some professional fees. Locality has more information or visit the Community Led Homes website for a wider range of advice. Some of the bigger lending institutions may also be worth approaching, such as Ecology Building Society, though obtaining finance for group self build schemes can be difficult, as you must be able to demonstrate the viability of the scheme.

CIL/S106 Exemptions

The Government has confirmed that self builders (and the clients of custom builders) will be exempt from paying the Community Infrastructure Levy (CIL) that is normally charged when planning permission is granted for a new house. But you must follow process, and it is time sensitive. It has also confirmed plans to exempt self builders from paying Section 106 (S106) Affordable Housing Contributions, although this has been challenged and seems to be in a constant state of flux.

See our CIL/S106 Exemptions page for more.

Budgeting Advice

Budgeting can make or break a project. The more accurate your estimates, and calculations, the more likely you will build your dream home without any crippling over spends.

See our Budget Advice page for more.

VAT and self builds

For a self build, labour is zero rated, and the VAT on materials can be reclaimed on a new build property, but it is still payable on services such as architectural fees and plant hire.

See our VAT pages of more.